SOK CORPORATION INTERIM REPORT 1 JANUARY 30 JUNE 2005 ECONOMIC ENVIRONMENT. Development of the associated companies, 1 January 30 June 2005

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1 SOK CORPORATION INTERIM REPORT 1 JANUARY 30 JUNE 2005 ECONOMIC ENVIRONMENT The world economy grew by 5.0 per cent in 2004, an exceptionally robust pace of economic growth. This growth is set to continue at a healthy rate although it will decelerate to settle at around four per cent this and next year. Finland s gross domestic product registered a growth of 3.7 per cent for last year. Growth for this year will remain perceptibly below this rate. The more subdued economic growth predicted for the eurozone and the prolonged labour dispute in the paper industry will slash growth in goods exports dramatically. ETLA, the Research Institute of the Finnish Economy forecasts a growth of 1.5 per cent for the GDP in the current year. Private consumption expenditure is forecast to rise 2.8 per cent. Consumer confidence has remained strong. However, confidence in Finland s forthcoming economic trend and employment took a tumble during late spring. Weakened confidence in the economic trend in Finland has affected consumer intentions only to a minor degree. The relatively healthy underlying tone in the Finnish economy generates the conditions for consumer confidence to hold steady at a relatively optimistic level. In July, consumer confidence took a modest upward swing with the settlement of the labour market disputes. Growth in retail sales in the current year is likely to remain more moderate than last year. This year, growth in households disposable income will rise at a slower rate than in the two preceding years due to a slight acceleration in inflation and no reduction in taxation. According to advance information from Statistics Finland, the value of retail sales, excluding the motor trade, was up 4.5 per cent in January May. The advance information from Statistics Finland shows that the value of the motor trade was up 5.3 per cent by the end of May. Growth within the grocery trade came to 1.9 per cent and the growth percentage in the department store trade amounted to 3.6 per cent. By the end of June, grocery sales by the member companies of the Finnish Food Marketing Association were down 0.2 per cent on the previous year. According to the wholesale and retail trade statistics issued by Statistics Finland, growth in apparel sales for the first four months of the year came to 6.6 per cent. Hardware sales for the same period were up 7.4 per cent. According to the Finnish Hotel and Restaurant Association FHR, sales in the hotel and restaurant sector grew by 2 per cent in the first quarter of the year. According to Statistics Finland, the number of overnight stays in hotels showed an increase of 4.1 per cent by the end of May. Following the slow months in the first part of the year, demand in the agricultural trade took an upward swing with the onset of spring. The outlook for this season s harvests is optimistic throughout almost the entire country and even better than average in some areas. The trade situation at year-end, with the exception of declined tractor sales, looks promising for the country as a whole. S Group business development, 1 January 30 June 2005 The S Group comprises cooperative societies and SOK with its subsidiaries. The S Group s retail sales during January June 2005 totalled EUR 4,151 million, an increase of 6.3 per cent on the previous year. The growth in sales was attributable largely to the favourable trend in the grocery trade and ABC service station store and fuel sales. Sales by business area million ± prev. yr. % S markets Prisma hypermarkets Sale and Alepa stores Grocery trade, total ,5 Service station stores and fuel sales Department stores and speciality stores Hotels (accommodation) Restaurants Motor trade and accessories Agricultural trade Other profit centres Operations in Finland, total Baltic operations S Group, total At the end of June, the S Group had 1,384 locations in Finland, as against 1,371 at the same time the year before. There were 22 regional cooperative societies and 20 local cooperative societies. The number of cooperative societies members came to 1,480,541 (an increase of 5.3%). Investments by members of the cooperative societies amounted to EUR million, representing growth of EUR 31.6 million on the same period a year earlier. Bonus sales by the S Group amounted to EUR 2,496.2 million, an increase of 12.8 per cent on the previous year. Members were paid a total of EUR 89.4 million in bonuses, an increase of EUR 12.4 million on the previous year (an increase of 16.2%) The S Group s sales in the current year will top the previous year s figure. Judging by the trend in earnings in the first part of the year, the S Group s aggregate full-year earnings are estimated to be on a par with the result in Development of the associated companies, 1 January 30 June 2005 SOK Corporation s major associated company is the Inex Group, which is responsible for producing sourcing and logistics services for convenience goods as well as logistics services for general merchandise delivered to the S Group s chain stores and certain other customers. The Inex Group s net turnover in January June amounted to EUR 981 million, an increase of 8.1 per cent. The company posted a profit, with improved earnings on the previous year. 1

2 OPERATIONS OF SOK CORPORATION, 1 JANUARY 30 JUNE 2005 Operations of SOK SOK is the parent company of SOK Corporation. In accordance with its statutes, SOK s task is to promote and develop the operations of the cooperative societies and other organisations belonging to the S Group and to attend to the management and supervision of the Group s overall resources for maximum efficiency, whilst also monitoring, within the framework of the Cooperatives Act, the operations and best interests of the S Group and its constituent organisations. SOK is in charge of the S Group s strategic guidance. Its tasks are to provide the S Group companies with services related to chain management, membership and marketing along with general chain and corporate services, including development activities connected with these services and the S Group s other operations. Other important services for the S Group s operations are purchasing, rental services and assortment and invoicing services for goods delivered directly from manufacturers to the chain units. Via its nationwide and regional subsidiaries, SOK is able to offer its members a wider spectrum of services in accordance with the decisions taken within the S Group. In addition, in the Baltic area SOK engages in the grocery and motor trade as well as the hotel business via its subsidiaries. Changes in the Group structure Changes during the report period In a deal made at the beginning of the year, the Tampereen Sokos Oy business was sold to Pirkanmaa Cooperative Society. In the same connection, SOK sold the shares in KOy Kauppahalli Piha to Pirkanmaa Cooperative Society, and KOy Tampereen Valtakulma sold the Sokos property it owned to Sampo Pankki plc, a bank. In transactions between SOK and HOK-Elanto, SOK s subsidiary Sokotel Oy sold the Memphis restaurant and Coffee House businesses that operate in the Helsingin Sokos property to HOK- Elanto on 1 January Sokotel Oy will continue to run the Sokos Hotel Vaakuna and the Ravintola Loiste restaurant business in the above premises. Sokotel Oy in turn purchased the Hotel Presidentti business from HOK-Elanto on 1 January SOK sold its shares in Uudenmaan ABC Oy to HOK-Elanto in May. SOK and HOK-Elanto established a company in the autumn 2003 to build up service station store sales in HOK-Elanto s business area. Upon completion of the deal, the company was transferred to full ownership of HOK-Elanto. In the same connection, SOK sold to HOK-Elanto the shares in three real-estate companies, whose premises are used by Uudenmaan ABC Oy to engage in service station store trade. In a transaction completed in January, SOK sold the shares in the company that owns the Joensuu Sokos property to Northern Karelia Cooperative Society. SOK established a real-estate company in February for building a new Agrimarket centre in Hyvinkää. Hankkija Maatalous Oy will transfer its premises from the Vallila district of Helsinki to Hyvinkää. The centre will start operations in In April, SOK s subsidiary Sokotel Oy sold Sokos Hotel Porin Vaakuna s business to Satakunta Cooperative Society. SOK has decided to focus its operations in the Baltic countries on grocery sales, the hotel business and the motor trade. SOK s subsidiary AS Prisma Peremarket bought shares in AS Ramare from ETK, a local company, in April. AS Ramare operates the business of the Tallinn-based Prisma Rocca al Mare. AS Prisma Peremarket has concluded an agreement for building a fifth Prisma hypermarket in Tallinn, in the Lasnamäe district of the city. The unit will open for business in autumn SOK s subsidiary AS Sokotel has signed a preliminary agreement with Pontos Oy for building a new hotel in the heart of Tallinn next to the present Sokos Hotel Viru. The hotel is scheduled to open its doors in the spring Changes after the close of the report period Tampereen Sokos Oy and KOy Tampereen Valtakulma will merge into SOK, and AS Ramare will merge into AS Prisma Peremarket. SOK and Cooperative Tradeka Corporation have entered into negotiations concerning the transfer of the entire shares outstanding of the sourcing and logistics company Inex Partners Oy to SOK. Net turnover SOK Corporation s net turnover for the period 1 January 30 June 2005 was EUR 2,029 million, an increase of 12.0 per cent on the same period a year earlier. Operations abroad accounted for 3.7 per cent of net turnover. SOK Corporation s net turnover by business area million million ± prev. yr. 1 Jan. 30 June 1 Jan. 30 June % Grocery trade Fuel sales Department stores and speciality stores Hotel and restaurants Motor trade and accessories Agricultural trade Consumer goods sourcing EDI invoicing Real-estate, rental and other service operations Eliminations Total Net turnover for fuel sales by the procurement company North European Oil Trade Oy soared 92.9 per cent on the previous year, attributable to the expansion of operations and the sharp rise in the price for crude oil. What is more, the company only began fuel deliveries to its customers in February the preceding year. Department stores and speciality stores saw a drop in net turnover of 68.9 per cent owing to the sale of the Sokos businesses in Helsinki and Tampere to the regional cooperative societies that will continue to operate them. On a comparable basis, department stores and speciality stores posted an increase in net turnover of 4.7 per cent. Net turnover within the hotel and restaurant business was up 3.1 per cent on the year before, largely attributable to Sokos Hotel Presidentti s entry into Sokotel Oy s business operations. Net turnover for the motor trade and accessories rose by 3.5 per cent on the previous year, however, remaining at a lower level than the budget. Net turnover derived from agricultural trade grew by 0.5%. Sales in hardware and the gardening trade showed a particularly good rate of growth. Net turnover within the grocery trade in Tallinn grew by 29.9 per cent, with net turnover from consumer goods sourcing up 9.3 per cent and invoicing for goods delivered by industry directly to the chain units (EDI) up 6.1 per cent on the figures a year earlier. 2

3 Net turnover from real-estate and rental services fell by 3.6 per cent on the previous year. Net turnover from other services rose by 12.2 per cent, due mainly to the increased volume of SOK s service offerings. Result SOK Corporation s profit before extraordinary items and taxes in the January-June period was EUR 54.0 million, as against EUR 33.0 million a year earlier. The increase in profit was attributable mainly to the growth in capital gains on the disposals of fixed assets. The operating profit figures by business area million million 1 Jan. 30 June 1 Jan. 30 June Grocery trade Fuel sales Department stores and speciality stores Hotel and restaurants Motor trade and accessories Agricultural trade Consumer goods sourcing EDI invoicing Real-estate, rental and other service operations Share of associated companies profits Eliminations Total Positive earnings were posted on fuel sales, up on the previous year. Profits reported by the department stores and speciality stores were down on the year before due to the divestment of Sokos business operations. The hotel and restaurant business reported slightly improved earnings than the previous year. The motor trade and accessories reported positive earnings. However, owing to tougher competition, they remained well below both the budget and the year-ago level. The year-on-year earnings within the agricultural trade remained at much the same level as the year before. Profits reported by the grocery trade in Tallinn as well as real-estate, rental and other service functions registered an improvement on the previous year. Capital gains on fixed assets, which are recognised as income within the Corporation, are included in eliminations. Capital expenditures and disposals of fixed assets SOK Corporation s purchases within non-current assets, i.e. investments in fixed assets, amounted to EUR 34.9 million in the first half of the year. The main capital expenditure items were the purchases of the Hotel Presidentti and the Tallinn-based Prisma Rocca Al Mare businesses as well as information system projects for the various functions. Disposals totalled EUR 51.1 million, of which the biggest items were the sale of the businesses and commercial premises of the Tampere Sokos department store and Uudenmaan ABC Oy as well as of the Sokos property in Joensuu. Financing Short-term market interest rates in the eurozone remained low in the first part of the year and they averaged on a par with the previous year. Longer rates continued to fall during the review period. SOK Corporation s liquidity remained good during the first part of the year. Liquid cash assets and money market investments totalled EUR million at the end of June. In addition, SOK Corporation had EUR million of unused binding credit facilities, of which EUR million were long-term. SOK Corporation s equity ratio remained sound. At the end of June, interest-bearing receivables amounted to EUR 91.1 million more than interest-bearing debt, representing an improvement on the previous year of EUR million. The SOK Group s net financial income and expenses, excluding write-downs on investments held in non-current assets, contributed EUR 4.2 million to earnings, representing an improvement on the previous year of EUR 2.2 million. The improvement was due mainly to the decrease in interest-bearing net debt. Personnel During the report period, the average number of staff employed by SOK Corporation, when converted to a full-time basis, came to 4,567, of which the parent cooperative s staff numbered 643. At the end of June, the Corporation had a payroll of 5,409 employees. The increase in the number of personnel compared with the end of the previous year was 619 employees, and compared with the same period in 2004, the number of employees was up 49. At the end of the report period, 1,056 of the Corporation s employees were employed abroad. The hiring of summer workers in the spring partly contributed to the growth in SOK Corporation s personnel during the report period. The transfer of Hotel Presidentti to SOK Corporation in January 2005 was the major reason for the increased number of staff. The sale of the Tampere Sokos, Sokos Hotel Porin Vaakuna and Uudenmaan ABC businesses to regional cooperative societies that will continue their operations accounted for a reduction in the number of personnel. Changes in SOK s administration Ulla-Maija Tolonen, managing director of Pirkanmaa Cooperative Society, joined SOK s Executive Board as a new member on 1 January 2005 in place of Commercial Counsellor Eero Saukkonen. Outlook for the 2005 financial year SOK Corporation s full-year net turnover is forecast to grow compared with the previous year. Based on the earnings estimates for the business areas in the latter part of the year, the full-year operating result is expected to weaken slightly on the previous year. However, the Corporation s profit before extraordinary items and taxes is estimated to improve on the previous year due to capital gains. Helsinki, 17 August 2005 SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA Executive Board 3

4 CONSOLIDATED INCOME STATEMENT, EUR million Change Net turnover Other operating income Materials and services Staff costs Depreciation and value adjustments Other operating expenses Share of associated companies profits (+/-) Operating profit Share of associated companies profits (+/-) Financial income and expenses (+/-) Value adjustments of investments in non-current assets Profit before extraordinary items Extraordinary income Extraordinary expenses Profit before taxes Direct taxes (+/-) Minority interest (+/-) Profit for the financial period CONSOLIDATED BALANCE SHEET, EUR million ASSETS Intangible assets Tangible assets Investments Stocks Receivables *) Securities Cash in hand and at bank Balance sheet total LIABILITIES Cooperative capital Other capital Minority interest Provisions Long-term liabilities **) Short-term liabilities Balance sheet total *) includes deferred tax receivable **) includes deferred tax liability

5 Contingent liabilities, EUR million Pledges and contingent liabilities On behalf of own liabilities Pledges Mortgages On behalf of associated companies liabilities On behalf of cooperative societies liabilities On behalf of others liabilities Other contingent liabilities Leasing liabilities Hire purchase repurchasing liabilities Other repurchasing liabilities Other pledges Other mortagages Other guarantees Rental liabilities: Rented business facilities used by the S Group are regularly secured with long-term contracts, for which the SOK Corporation bears rental liabilities. Liability under derivative contracts, EUR million Value of Fair value Of which value Fair value Value of Fair value underlying of underlying of open underlying assets instruments of agreements assets open agreements Interest rate derivatives Option contracts Purchased Written Interest rate swaps Currency derivatives Electricity derivatives Oil product derivatives Future contracts Option contracts Purchased Written Oat Derivatives Future contracts In examining the overall risk position, the position of the balance sheet items that are to be hedged must be taken into account in addition to derivatives. The derivative contracts that were open at the end of the financial period have been used primarily to manage the Group s foreign exchange, interest rate and price risks. The open interest rate swaps are from one month to ten years in length. Open electricity forwards will fall due within the next three years. Other open derivative contracts are under a year in length. The fair values of derivatives are based on market values or the present values of future cash flows. The information in the interim report is unaudited. SUOMEN OSUUSKAUPPOJEN KESKUSKUNTA (SOK) Fleminginkatu 34, Helsinki, P.O. Box 1, FIN S GROUP, Finland, tel , telefax , 5